philippe.lasserre @insead.

edu
 Opportunities

 Size
 Growth
 Middle Class
 Outsoursing/Offshoring
 Modernization

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 Will the two Asian Giants take over the World?

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 India and China Compared
ECONOMICS

INDIA CHINA

GDP (c urre nt US$ Billions 2006) 900 2668

GDP, PPP (c urre nt inte rnational $,2006) 4247 10048
GDP pe r c apita, (c urre nt US$, 2006) 820 3827
GDP pe r c apita, PPP (c urre nt inte rnational $, 2006) 3827 7660

GDP Annual Growth 2003-2006 8.8% 10.3%

Gros s dom e s tic s aving s (% of GDP AVG 2006-2009) 28.5% 45.6%

Gros s c apital form ation (% of GDP AVG 2006-2009) 30.6% 42.30%
Fore ig n dire c t inve s tm e nt, ne t inflows (% of GDP Avg ) 0.8% 3. 1%
Exports of g oods and s e rvic e s (% of GDP Avg ) 17.7% 34.4%
Hous e hold final c ons um ption (% of GDP Avg ) 60.20% 40.60%

Stocks of Foreign Direct Investements (Bilions US$) 45 300

Source: World Bank Data Base, 2008

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 India and China Compared
DEMOGRAPHICS

INDIA CHINA
Population, total Millions 1109 1311
Urban population (% of total) 29% 41%
Household size 5.4 3
GINI Ratio (Indicator of Income Distribution: from 0,
Equal to 1 Inequal 37 47

Literacy rate 61% 90%

Internet users (per 1,000 people) 55 85
Personal computers (per 1,000 people) 15 40
Physicians (per 1,000 people) 0.6 1.5
Broadband subscribers (per 1,000 people) 1.2 29
Mobile phone subscribers (per 1,000 people) 82 301

Source: World Bank Data Base, 2008

philippe.lasserre @insead.edu
 EVOLUTION OF URBAN HOUSEHOLDS INCOME IN CHINA

100%
1995
90%

80%

70%

60%

50%
2005
40%

30% 2015

20% 2025
10%

0%
0 25000 40000 100000 150000 200000 250000 RMB
POORS LOWER UPPER MASS
MIDDLE MIDDLE GLOBAL
AFFLUENTS AFFLUENTS
CLASS CLASS

~ 3000 ~4500 ~12000 ~24000 USD

Source: McKinsey Quarterly: The Value of China’s emerging Middle Class, 2006
philippe.lasserre @insead.edu
 Middle Class in China
McKinsey Survey 2006

Household size: Urban Population %: Total Population :

2005=3 2005=40% 2005=1300 M
2025=2.35 2025=60% 2025= 1600 M

Source: McKinsey: “From Made in China to sold to China, The Rise of the Chinese Urban Customer, ,Nov 2006
philippe.lasserre @insead.edu
 Middle Class in India
McKinsey Survey2007

60%

50%

2005
40% 2015

2025
30%

20%

10%
Thousand Rupiah
Per Household
1US$=45.7Rp)
0%
0 100 200 300 400 500 600 700 800 900 1000

“Aspirers” Low Middle Class Middle Class “Global”

(90000-200000Rp) “Seekers” ( 200000-500000 Rp) “Strivers” (500000-1000000Rp) Above 1000000Rp
Deprived (2000-4400US$) (4400-11000Us$) (11000-21000US$) >21000US$
Below 90000Rp
<2000US$

Source: McKinsey: The 'Bird of Gold': The Rise of India's Consumer Market,2007

philippe.lasserre @insead.edu
 Middle Class in India
McKinsey Survey2007

Household size: Urban Population %: Total Population :

2005=5.4 2005= 30% 2005=1090 M
2025=5.1 2025= 40 % 2025= 1400M

Source: McKinsey: The 'Bird of Gold': The Rise of India's Consumer Market,2007
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philippe.lasserre @insead.edu
 Source: McKinsey: The 'Bird of Gold': The Rise of India's Consumer Market,2007
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 Outsourcing and Offshoring

China and India are both attractive for Selling as well as for Sourcing

Source: BCGReport, “ Rethinking Made in China”, 2002

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philippe.lasserre @insead.edu
 OFFSHORE LOCATION ATTTRACTIVENESS

Canada
High Quality
Singapore

Ireland Australia India

People Skills
And
Business Czech Rep.
Malaysia
Environment
Brazil China

Thailand Philippines

Low Quality Turkey Vietnam

High Costs Low

Source: AT Kearney
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 R and D Moving fast to China and India

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 Beyond Selling: Some Examples of European companies

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 Successful European Companies in India
Some examples

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 The Challenges of India

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 India and China Compared
China
The Factory of the World
Led by Strong Government
High Domestic Savings
High Inflow of DFI
Rel. Good Infrastructure
but:
Weak Legal System
Weak Financial System
Inefficient Allocation of Capital
Electronics/Sport Shoes - Cars -
philippe.lasserre @insead.edu
India
The Back Office of the World
For Knowledge-intensive Industries
Excellent Educational Institutions
World Class Professionals
Emerging MNCs
but:
Weak Physical Infrastructure
Shortage of Capital
Weak Government
Software/Pharmaceuticals
Source: Hellmut Schutte, 2007
 India and China Compared
EASE OF DOING BUSINESS

INDIA CHINA De nm ark

Tim e to s tart a Bus ine s s (days ) 33 35 6

Cos t of Starting a Bus ine s s (% of Inc om e / c ap) 74.60% 8.40% 0%

De aling wth lic e ns e (days ) 224 336 69

Cos t of De aling with lic e ns e (% of Inc om e / c ap) 519% 840% 61.8%
Num be r of proc e dure s to de al with lic e ns e 20 37 6

Diffic ulty of Hiring worke rs ( INDEX 0-100) 0 11 0

Diffic ulty of Firing worke rs ( INDEX 0-100) 70 40 10

Proc e dure s to re g is te r prope rty 6 4 6

Tim e to re g is te r prope rty (days ) 62 29 42
Cos t (% of prope rty value ) 7.7% 3.6% 0.6%

Stre ng hth of Inve s tor prote c tion Inde x (0-10) 6 5 6.3

Proc e dure s to e nforc e c ontrac ts (Ranks ) 177 35 34

Tim e ( days ) 1420 406 380
Cos ts (% of Claim s ) 39.6% 8.8% 23.3%

Tax rate total (% of Profit) 70.6% 73.9% 33.3%

Source: The World Bank and IBRD, Doing Business 2008

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 India and China Compared
CORRUPTION

India 3.5
Tranparency International Corruption Perception Index
From 10 (highly clean) and 0 (highly corrupt). China 3.5
Denmark 9.4
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 India and China Compared
INFRASTRUCTURES

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 India and China Compared
RISKS

5
Extreme

4.4
Very High
4
Significant
3.5
Economical High

& Operational 3 CHINA

Risks Medium INDIA
2.5
Moderate
2
Low

Negligible 1.5

Insignificant DENMARK
1
1 1.5 2 2.5 3 3.5 4
w

gh
ium

gh

e
t

le

an
an

te

em
Lo
gib

Hi

Hi
era

ific
ific

tr
Me
gli

ry

Ex
d

n
gn

Mo

Sig

Ve
Ne
i
Ins

Political Risks Source: Global Insight, March 2008

philippe.lasserre @insead.edu
 Ten Tips for Success in India

1- View India as a Key Country

2- Align the organisation to the Indian Realities
3- Allows for autonomy of local operations and frequent interactions
between headquarters and local operations
4- Adapt performance indicators
5- Create a a high quality local team
6- India country manager considered as “Strong” in the corporate
global team
7- Provide local team with flexibility to adapt and experiment
8- take advantage of India opportunities beyond selling
9- Localize parts of the value chain to benefits from costs and capabilities
opportunities
10- India-specific business model

Source: BCG and CII, “Ten tips for Successful European Companies in India”, January 2004
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philippe.lasserre @insead.edu
 The Whirlpool Story in China

 By mid 1990’s Whirlpool had big ambition for Asia

 China was considered as Key Market

 Very fragmented industry with 650 appliances manufacturers

operating in China

 Customers focus on local brands

 Some emerging Chinese leaders : KELON, HAIER

philippe.lasserre @insead.edu
Whirlpool entered in 1994:

 JV in Beijing for refrigerators (Snowflake)

 JV in Shanghai for washers (Whirlpool Narcissus)
 JV in Shendu for microwaves ( MCV)
 JV in Shenzhen for Airconditioners ( Whirlpool Raybo)

Plus a greater China Headquarters in HongKong

And a Design Centre in Singapore

 Whirlpool exited in 1997 from refrigerators and airconditioning

ventures

Still produces compressors in Beijing, microwaves in Shendu

and washers in Shanghai

philippe.lasserre @insead.edu
 Market dominated by local players

China’s Appliances
Market Shares in 2002
100%
90% Other
80%
70%
60% Meiling
50% Xinfei
40%
Haier
30%
20%
10% Kelon
0%

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philippe.lasserre @insead.edu
 What to learn?

 The dynamic of low-end competition should not be under-

estimated
 In China low-end local competitors develop:
 Volume
 Market presence end reputation
in the less sophisticated segments of the market
and gain :
 Experience
 Exports
 And move up the technology ladder

philippe.lasserre @insead.edu
 Dragons at Your Door*

Chinese companies disrupt global competition through

COST INNOVATION:
ie, using cost advantages in radically new ways to offer customers
around the world dramatically more for less

 Start in China and overcome fragmentation

 Export looking for loose bricks in competitors defense
(unexplored markets or products)
 Moving up market: technology at low cost ( licensing, copying)
and variety at low cost

Source:Ming Zeng and Peter Williamson, Dragon at Your Door:

How Chinese Cost Innovation is Disrupting Global Competition
philippe.lasserre @insead.edu Harvard Business School Pres s, 2007
 The Example of the Beer Industry

US/ European/ Japanese

Brand Overcapacity
Differentiation
San Miguel Here <
APB all competitors
do the same

Domestic Firms SAB

Building
Strategic Tsingtao
capabilities
Yanjing

Price-based Domestic competitors

competition
Premium
Standard segments segments

philippe.lasserre @insead.edu
 Earth Moving Equipment
Wheel Loaders

Global Market: 720,000 units

China Market: 120,000 Units

Production Capacity in China:

200,000 Units
Chinese Product
Prices:
CAT, Volvo: 120,000$
Komatzu:60,000 $
Chinese Cos 30,000 $

Chinese Co exported:
2,000 Units in 2004
3,500 units in 2005

Caterpillar

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 EMERGING BATTLEFIELD

High
DIFFERENTIATED EMERGING
POSITIONING APPLIED BATTLEFIELD
TO HIGH END SEGMENTS Low Cost
Price Premium Mass Distribution
Low Volume Diffrentiated
High Costs
High Technolgy
Strong Brands

Most Western Competitors

TECHNOLOGY
and COST LEADER SHIP
POSITIONING APPLIED
MARKETING TO HIGH VOLUME
ADVANTAGES LOW END SEGMENTS

Low Price
Mass
Distribution

Low Large Chinese

Competitors
Ex: Kanko, Haier

LOCAL
Low KNOWLEDGE
High
and
Adapted from:
Ming Zeng and P. Wiliamson
PREFERENTIAL
ADVANTAGES
philippe.lasserre @insead.edu
 National Champions: Building The Business

High-End Markets
Dominated by Multinationals

High

s
Path
t
en
Performances p m
v el o Low-End Markets
and De
e Dominated by Domestic Firms
Products/Services p tiv
Functionalities i sru
D
Canon in Japan in the 60’s
Honda Motorcycles in the 60’s
Galanz in China in the 90’s i Microwaves
TCL in China in TV
Samsung in Korea with micro electronics in the 80’s
Low Reliance in India in the 90’s in pharmaceuticals

Time

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 National Champions: Building The Business

• Proprietary Technology
• Own brand
Sources of Competitive Advantage

• International marketing

• Brand creation and development

• Investment in Research and Development
• International expansion

• Labor costs still moderate

• Invest in modern technology
•

• Low cost based on low labor costs and financing

• Large part of activities based on sub contracting,
minimizing marketing and R&D costs
• Technology is acquired thru licensing or joint-Ventures

Japan 1950’s 1960’s 1970’s’s and beyond

Time

Korea 1960’s 1970’s 1980’s 1990’s and beyond

China 1980’s 1990’s 2000’s 2005 and beyond

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 National Champions: Building The Business

• Compete head-on with traditional

global firms

• Start International expansion mainly

by acquisitions
• Invest in modern manufacturing
technology
• Start to uild their own brand
• Start teir own R and D

• Protected Domestic markets

• Low- cost manufacturing based on
low labor cost
• In some cases access to natural resources
• T echnology is acquired thru licensing
or joint Ventures
• Large part of activities based
on original equipment manufacturing

Time
Step 1 Step 2 Step 3
Domestic player Internationalisation Global Player
And exporter

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 Chery-Chrysler deal

 DaimlerChrysler AG and Chery Automobile Co. struck a deal on Dec. 30

 Chrysler will be the first major carmaker sell Chinese-built

cars in the United States.

 Chery will produce a subcompact for Chrysler to be

be sold in the United States under the Dodge brand in 2009.

 Chery, based in Wuhu in Anhui province, is one of China's fastest-growing

automakers and sold 50,000 vehicles abroad in 2006.

 State-owned Chery previously considered exporting vehicles to the

United States in a venture with American entrepreneur Malcolm Bricklin

 It has an agreement to produce engines for Italy's Fiat.

philippe.lasserre @insead.edu
 Personal Computers, Servers,

• Founded in 1984 in Beijing, (China Academy of Sciences), Listed in KH in 1994

as “Legend”
• Dominated the PC Market in China with around 27% Market Share
• Acquired IBM PC division in 2005
• N°3 PC maker in the world (after Dell and HP/Compaq
• Revenues 13 billion US$ in 2006

Ningbo Bird: Mobile phones

• Founded in 1992, started producing pagers

• Granted license to produce mobile phones in 1999 originally SAGEM
technology
• Listed on Shanghai Stock Exchange
• Became N° 1 brand in China in 2003
• International Expansion: 6 millions units exports (out of 14 Billions)
• Total revenues in 200-: 930 M$
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 Home Appliances, IT

• Founded in 1984 in Qingdao

• Considers itself as the 4th white goods manufacturer in the world
• Revenues in 2007 : 15.2 billion $
• Sells products in 160 countries and produces in 13 countries

“Guided by business philosophy of CEO Zhang Ruimin, Haier has

experienced success in the three historic periods, noted
as Brand Building, Diversification and Globalization.
At the 21st anniversary of founding of the Haier Group December 26, 2005,
Haier announced its 4th strategic development stage of Global Brand Building “

philippe.lasserre @insead.edu
 Multimedia, Telecommunication

 Founded in 1981 to produce telephone handsets

 Early 1990’s went to audio equipments and distributed TV sets
produced in HK
 Started production on TV sets in 1996 in Shenzen
 became n°1 TV producer in China in 2003
 Expanded production in Vietnam, Philippines, Indonesia,
Thailand, Russia,
Acquired “Schneider” in Germany
 In 2004 created TTE( TCL Thomson Enterprise with Thomson Multimedia)
(TCL owns 67 % of the venture)
 n°1 Worldwide producer of TV sets
 In 2005 fully acquired mobile phone handsets business from Alcatel
 Weak results in mobile handsets
 630 M$ sales in 2007

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 Telecommunication networks products and solutions

 Started in 1988: digital fixed switch

 In 1997: Launched GSM equipment.
 Established joint R&D labs with Texas Instruments ,
Motorola, IBM, Intel,
Agere Systems, Sun Microsystems, Altera, Qualcomm,
Infineon and Microsoft.
As of June 2005, Huawei Technologies has a total of 10 joint research labs.
 In 2000, Established R&D centers in the Silicon Valley and Dallas
of United States
 Cisco Systems alleged that Huawei Technologies
had infringed some of Cisco's technology patents . Litigation resolved
 11 Billion USD revenues in 2006

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 Indian Champions

• Established in 1981
•1987 First office in the USA
Consulting and • 2006 Revenues crosses $ 2 billion.
IT Services • 66 Employees.
• Celebrates 25 years

• Created in 1961,
• India's largest pharmaceutical company,
Pharmaceuticals • Ranked amongst the top ten
generic companies worldwide.
• Manufacturing operations in 8 countries
• Subsidiaries presence in 49 countries
• Products available in over 125 countries.
• Went public in 1973.
• Company's Global Sales US $1330 M in 2006

philippe.lasserre @insead.edu
 • Created in 1961,
Bharat Forge
• Largest exporter of auto components from India
• leading chassis component manufacturer in the world.
Automotive Components • Manufacturing operations in 10 locations in 6countries
• Company's Global Sales US $1050M in 2007

•India's oldest, business conglomerates.

•Spread over seven business sector:
Engineering, Chemicals, Materials, Energy,
Conglomerate Consumer Products, IT, Communication.
•98 companies operating in six continents.
•Sales billions US$ 28.8 Bilions in 2007
•Employs some 289500 People.

philippe.lasserre @insead.edu
 Multinational Corporations from:

China India
ALUM INIUM CORPORATION OF CHINA Me tals BAJAJ AUTO Automotive
BOE TECHNOLOGY C omp ute r and IT BHARAT FORGE Automotive
BYD C onsume r Ele ctronics CIPLA Pharmace uticals
CHINA AVIATION Ae rosp ace CROMPTON GREAVES Eng ine e ring
CHINA FAW (Firs t Autom otive Works ) Automotive Dr's REDDY LABORATORIES Pharmace uticals
CHINA HUANENG Fue ls HIND ALCO Me tals
CHINA INTERNATIONAL M ARINE Eng ine e ring
CONTAINERS GROUP (CIMC) Ship p ing LARSEN & TOUBRO Se rvice s
CHINAMINM ETALS CORP Me tals INFOSYS IT se rvice s
CHINA MOBILE Te le com Se rvice s MAHINDRA Automotive
CHINA HEAVY DUTY TRUCKS Automotive ONGC Fue ls
CHINA NETCOM Te le com Se rvice s RANBAXY Pharmace uticals
SINOPEC Fue ls RELIANCE C he micals
CHINA SHIPPING Ship p ing SATYAM COMPUTER SERVICES IT se rvice s
CHUNLAN Home Ap p liance s TATA CONSULTING SERVICES IT se rvice s
CNOOC Fue ls TATA MOTORS Automotive
COSCO Ship p ing TATA STEEL Ste e l
DONFENG Automotive TATA TEA Food & Be ve rag e s
ERDOS Te xtile TVS MOTOR Automotive
FOUNDER C omp ute r and IT VIDEOCON C onsume r Ele ctronics
GALANZ Home Ap p liance s WIPRO Pharmace uticals
GREE ELECTRIC Home Ap p liance s
HAIER Home Ap p liance s
HISENSE C onsume r Ele ctronics
HUAWEI Te le com Eq uip m e nt
KONKA C onsume r Ele ctronics
MIDEA HOLDING Home Ap p liance s
NANJING AUTOMOBILE CORP. Automotive
PEARL RIVER PIANO Musical Instrume nts
PETROCHINA Fue ls
SAIC Automotive
BAOSTEEL Ste e l
SHOUSHANG Ste e l
SINOCHEM C he micals
SKYWORTH C onsume r Ele ctronics
SVA C onsume r Ele ctronics
TCL C onsume r Ele ctronics
TSINGTAO BREWERY Food & Be ve rag e s
UTSTARCOM Te le com Eq uip m e nt
WANXIANG Eng ine e r ing
ZTE Te le com Eq uip m e nt

Multinationals companies are defined as companies above 1 billion $ in Sales (2004) and at least 10% made internationaly
Source: The Boston Consulting Group: "The New Global Challengers ", a BCG report , 2006
philippe.lasserre @insead.edu
 Cross-Borders Acquisitions from:

Millions US $ 16000

14000

12000

10000

8000

6000

4000

2000

0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Ind ia China

Source: UNCTAD “World Investment Report, 2006

philippe.lasserre @insead.edu
 The top 10 acquisitions made by Indian companies worldwide:

Acquirer Target Company Country targeted Deal value ($ ml) Industry

Tata Steel Corus Group plc UK 12,000 Steel

Hindalco Novelis Canada 5,982 Steel
Videocon Daewoo Electronics Corp. Korea 729 Electronics

Dr. Reddy's Labs Betapharm Germany 597 Pharmaceutical

Suzlon Energy Hansen Group Belgium 565 Energy

HPCL Kenya Petroleum Refinery Ltd. Kenya 500 Oil and Gas

Ranbaxy Labs Terapia SA Romania 324 Pharmaceutical

Tata Steel Natsteel Singapore 293 Steel

Videocon Thomson SA France 290 Electronics
VSNL Teleglobe Canada 239 Telecom

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 What to learn?

 Leading Companies can contain low-end competitors:

 By establishing less sophisticated products or services
 Even at the cost of cannibalization

 Doing so allow them to approach new customers

and gain :
 Volume and Experience
 Learn
 Facilitate theintroduction of their “global” brand

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